DCIT, Central Circle-15, New Delhi challenges the decisions of the CIT(A)-28, New Delhi, regarding various disallowances made during the assessment year 2016-17. The main issues revolve around the treatment of mobilization advances and salary expenses by B.L. Kashyap & Sons Ltd., a construction and allied services company.
The appeal arises from earlier orders that addressed the inclusion of mobilization advances and certain salary expenses in the Work in Progress (WIP), impacting the reported income and tax calculations. The tribunal reviewed the consistency and justification of accounting practices adopted by the assessee and the rationale behind the AO’s adjustments.
The tribunal evaluated the appropriateness of the CIT(A)’s decisions to delete additions related to mobilization advances and salary expenses. The methodological approach of accounting for these transactions as per the Percentage Of Completion Method (POCM) and the sufficiency of documentary evidence were critical aspects of the appeal.
Significant attention was given to the matching principle of accounting and the rationale behind ad hoc disallowances made by the AO. The decisions of the CIT(A) were upheld, emphasizing the importance of maintaining consistent accounting practices and proper documentation in tax assessments.
The tribunal’s decisions reaffirm the principles of consistent accounting practices and the necessity of substantial evidence in making tax adjustments. This case serves as an essential reference for tax professionals dealing with issues of mobilization advances and related revenue recognition in construction contracts.
Tax Appeal Analysis: ITA No. 2404/Del/2022 – DCIT vs. B.L. Kashyap & Sons Ltd
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